Yau Lee Holdings (HKG:406) has announced that its dividend will be reduced to HK$0.025

Yau Lee Holdings Limited (HKG:406) announced that it would reduce its dividend payable on October 11 to HK$0.025. This means that the dividend yield is 3.6%, which is a bit low compared to other companies in the sector.

Check out our latest analysis for Yau Lee Holdings

Yau Lee Holdings’ dividend is well covered by earnings

It would be nice if the yield was higher, but we should also check whether higher levels of dividend payments would be sustainable. Prior to making this announcement, Yau Lee Holdings was easily earning enough to cover the dividend. This means that most of what the business earns is used to help it grow.

If the trend of recent years continues, EPS will increase by 39.3% over the next 12 months. Assuming the dividend continues on recent trends, we think the payout ratio could be 28% by next year, which is in a fairly sustainable range.

SEHK: 406 Historic dividend July 3, 2022

Dividend volatility

Although the company has a long history of dividends, it has been cut at least once in the past 10 years. The dividend increased from HK$0.023 in 2012 to the most recent annual payment of HK$0.05. This implies that the company has increased its distributions at an annual rate of approximately 8.2% over this period. It’s good to see the dividend growing at a decent pace, but the dividend has been cut at least once in the past. Yau Lee Holdings may have tidied up since, but we remain cautious.

The dividend should increase

With a relatively unstable dividend, it is even more important to see if earnings per share increase. Yau Lee Holdings has impressed us by increasing EPS by 39% annually over the past five years. A low payout ratio gives the company great flexibility, and the growth in earnings also allows it to increase the dividend very easily.

Yau Lee Holdings looks like a big dividend stock

It’s usually not great to see the dividend cut, but we don’t think that should happen much, if at all, in the future, given that Yau Lee Holdings has the makings of a stock. solid income in the future. The cut will allow the company to continue paying the dividend without putting pressure on the balance sheet, meaning it could remain sustainable for longer. All of these factors taken into account, we believe this has strong potential as a dividend-paying stock.

Market movements testify to the valuation of a consistent dividend policy over a more unpredictable one. Meanwhile, despite the importance of dividend payouts, these are not the only factors our readers should be aware of when evaluating a company. For example, we chose 4 warning signs for Yau Lee Holdings that investors should be aware of before committing capital to this security. If you are a dividend investor, you can also consult our curated list of high yielding dividend stocks.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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